File this under "problems you'll never have": Apple's corporate wallet is stuffed with nearly $66 billion. And as that nest egg grows, so do questions about what Jobs & Co. plans to do with all that ready mazuma.
Announcing its financial results for its second fiscal 2011 quarter, Apple said that its cash plus short-term and …

Why Pay Dividends?

Apple needs to pay dividends, because they have no ideas. Their cash flows have exceeded their business ability. When this happens, smart firms pay dividends rather than invest the money in random other companies. This is because the investors make their decisions based on risk and return and therefore firms should not be involved with anything other than their own operations.

As you can see, instead they have been investing in long term securities. Investors could invest in those same securities by themselves if they so desired and Apple has no business being involved with them.

Except Apple is out of ideas, so they have no operations to invest the money in.

This is also a side effect of the 50% brand premium they charge. Their costs never come close to their revenues.

Can someone answer me a question?

I'm a bit of a stock market/shares newbie, so can someone please explain to me why Apple shares are worth as much as they are given that they don't pay any dividends? Why would anyone want to hold them if they don't pay anything back to the holder? Am I missing something about how the US stock market works?

@AC: 06:46

It's all about long term return on investment. (Emphasis on long term)

The laws of supply and demand dictacte that as demand for a finite resource increases, so the price will rise.

Since there are only a finite number of shares knocking around for Apple stock, and because Apple are a successful company, the price of each share rises. Thus, people want to get in, betting on the fact that Apple will continue to be successful and therefore the value of their stockholding will increase.

Think about it ... if you'd bought $1000 of Apple stock in 2001 ($22/share on January 18th 2001), it would now be worth around $15.940 ($350.7/share today) .. not a bad ROI.

like gold

Q - "can someone please explain to me why Apple shares are worth as much as they are given that they don't pay any dividends?"

A - It is still an investment, it is just an investment that wont payout until you sell. For example if I bought a few pounds of gold in 1994 and buried it in my back yard until last month when I went to a broker and sold it at todays rate I would have received no money up until the point I sold the gold back onto the market. Companies have a choice as to whether or not they pay dividends, most do but it is not the only way of doing things...

Also, by keeping the cash Apple is boosting the value of their share price, all that money it has in the bank (or invested) is factored into the share price

Growth Stocks

I two words Capital Growth. Investors buy shares in companies such as Apple on the basis that they are growth stocks. The principle is that the money freed up by not paying dividends can be invested to grow faster. It was an approach taken by many US technology stocks. Of course how this fits with a company sitting on a huge cash pile is another question. Should Apple be unable to maintain the momentum of its growth and it can't find anything useful to do with the money, then the stock price will stall, fall and there will be a clamour to return these funds.

It's storing up a problem for the future - it's difficult to see how Apple can continue to grow at the same rate and many investors will count on getting out before any share price fall. However, there are always more losers than gainers.

why you'd want them

Here's one answer

Shares are worth what the market estimates a company is worth, divided by the number of shares. That estimation is based on assets, liabilities, profits, future growth, and other factors. Most tech stocks are worth about twenty times their earnings, plus their cash pile, modified by what the market thinks future earnings will look like.

Dividends are just one way for an investor to make money. The other is for the value of the stock to increase. Stock increases are generally considered better, because capital gains tend to pay fewer taxes than income. I'd get to keep more money if I sell a share at $1 more than I paid for it, rather than have that share pay me a $1 dividend.

So, at least in theory, a dollar is worth more sitting in Apple's bank than it is paid out in a dividend. But ideally, Apple would figure out a way to invest that dollar to create even more company growth.

Basically

They are bought on the basis that their value will keep increasing. Which they have.

I can't find a link right now, but I believe that Jobs has pretty much said that Apple is only interested in long-term investors, which is what you would have to be to make decent money from buying and then selling Apple shares.

I'm speculating, but that may be another reason for not paying out dividends; Jobs is philosophically opposed to short term stockholders who would expect to make money simply by owning Apple shares.

Dividends

People usually buy, sell and hold shares on the principle that what you sell them for is more than what you buy them for (although not always, if you are short selling it's the reverse and a bit more confusing).

Share price is more an indication of the market's perceived value of a company rather than how much an investor will get back in return. Additionally share price is affected by how many shares exist, which is another reason AAPL is up at $350 and MSFT at $25, despite them being similar sized companies (or rather Microsoft has many more employees and larger revenue).

Dividends are not usually the primary way investors make their money. By my calculations if I invested $10000 in Microsoft a year ago I would have made $186 in dividends and lost $2000 in share value. The same purchase of AAPL would have made me $2600 in the same period. I know which one I'd go for, even without a dividend.

Absolutely

All?

Difficult one

When you invest in a div paying company you get back a portion of your investment with each div which lowers your exposure. With Apple the only way to reduce your exposure is to sell a portion of your stake or get out entirely. Many investors will remain 100% exposed as who would sell a rising stock?

Trouble is, if Apple coughs and a few investors get nervous it could turn into a snowball crash much more easily than with a div paying company. People will stick with some level of capital value decrease if the company has proven a good payer over time and a chunk of their exposure has been mitigated. BP's share price for example didn't crash that greatly because investors know the good times will return and the fat payouts will resume, they lost about a third and have recovered a good lump of that already.

If Apple screw up their market cap could crash to not much over their cash pot very easily indeed. Thus they are a bit stuck, they need to go on being tightwads because if they didn't have a healthy reserve the emporers clothes could begin to look very slight indeed. A run on a companies stock can only ever go as far as their asset value. When RBS went titsup they lost 98% or so of their value because the cupboard was bare and their share price has barely begun to recover now despite being well on the way back to to profit. The sums lost by BP and RBS triggering the runs on their shares were similar, around £40bn. Apples bulging wallet limits the extent of a run on them.

On the whole I think their refusal to pay any dividend is dangerous , in increases the liklihood of a run on their share but at the same time limits the damage such a run would do.

Next Logical Step

The next logical step for Apple is to dive into gaming. They have always wanted to make the Mac a gaming platform. They would first release the console on iOS but have easily ported games on the Mac ala "Game Center for Mac OS". In order to do this they will need three things:

1.) A Mac OS that borrows heavily on the iOS platform.

2.) Enough reserve cash to begin producing a console at a loss

3.) A library of games to introduce on the new console (Optional but preferred)

Apple has the second part, and Mac OS Lion is around the corner. I think that Lion will preview the integration but what comes after Lion will be an all new OS that integrates the two seamlessly. By this time the next console generation will be set in motion.

As for the library of games, they are building one. All they need is a franchise. Such as Nintendo or Sega like franchise. Perhaps even buying out Disney Interactive. Apple has its roots in Atari. Afterall it was Steve Jobs and Steve Wozniac that programmed games for Atari while in college. Ever hear of Pong?

Apple has always hoarded cash

Apple has always had monumental cash reserves. Alas, that was part of the problem that lead to Apple's problems in the 1980s. I remember when I sold Macs in the late 1980s, Apple had a cooperative deal with GMAC (I think it was GMAC) for financing and leasing computers. It added considerably to the cost of Macs (giving Microsoft and IBM an opening) but helped them acquire a huge cash hoard. Even as Apple was supposedly "dying," their cash reserves kept growing. This was one of the reasons behind Michael Dell's remarks about how he'd "liquidate the company and give all the stockholders their money back." There was a LOT of money to give back.

The against (dividends) argument

The guy in the link is saying wallstreet investors are easily duped by headlines reporting cash in the bank (instead of looking at profit and growth). Pretty likely given that duping dumb people into overvaluing a product is Apples speciality.

Apple's 10-Q form filing with the U.S. Securities and Exchange Commission has revealed the largest sequential increase in purchase commitments for a March quarter to $11 billion, as iPad 2 production ramps up.

$11B in purchases planned as iPad 2 ramps up, iPhone 5 rumors heat up

The "10-Q Tidbits" were highlighted this week by analyst Katy Huberty with Morgan Stanley. The financial document shows that Apple's purchase commitments increased 39 percent quarter over quarter by the end of the March quarter.

Apple plans to spend $11 billion on components and other purchases in the March quarter, up from $7.9 billion at the end of 2010. That sequential increase is a record for a March quarter.

missed the point

Money-go-roun

Given MS gave its cash to Nokia, http://www.cmswire.com/cms/enterprise-20/applenokia-report-earnings-a-game-of-two-halves-010961.php, how about Apple gives its cash to Motorola... keep the old guys ticking over, and Apple has done bizness with M once or twice (cringes at memory)

"what Jobs & Co. plans to do with all that ready mazuma"

Jobsian Mind Tricks

"Jobs was reported to have told moneymen inquiring about dividends: "Which would you rather have us be? A company with our stock price, and $40 billion in the bank? Or a company with our stock price and no cash in the bank?""

That should be filed under Jobsian Mind Tricks such as, "These aren't the $40 billion return on investment you're looking for."

After which Lord Jobs said unto his flock, "He can go about his business."

And his flock did say, "You can go about your business. Move along... move along."